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The site was first settled under the name of Indian Creek, when the mostly-Chinese work crew of the Central Pacific Railroad arrived on April 12, 1869, less than a month before the driving of the golden spike. When the post office was established here on December 16, 1869, it was named Kelton after an early stockman. It quickly grew into a prosperous town, soon including several fine hotels, stores, homes, a whole row of saloons and gambling halls, and even a telephone exchange.

Kelton was ideally positioned to link the railroad to the large northern markets of Oregon, Idaho, and Montana. Already by the summer of 1869 a stagecoach route was established between Kelton and Boise, Idaho. By 1871 the Kelton Freight Road was the best road leading into southwestern Idaho. In the 1870s and early 1880s, the Wells Fargo stage line running between Kelton and several gold mines in Idaho and Montana was robbed more often than any other stage line in the Old West. Treasure hunters still search for the hundreds of thousands of unrecovered dollars rumored to be cached in the nearby City of Rocks.